Income Taxes

12 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income Tax Expense

The components of income tax expense from continuing operations for 2022, 2021 and 2020 were as follows:

	2022		2021		2020
	(In thousands)
Current
Federal	$	2,849	$	—	$	—
State	28,125		252		14,193
Deferred
Federal	43,435		128,867		143,039
State (1)	3,101		24,617		(11,879)
Income tax expense	$	77,510	$	153,736	$	145,353

(1)    Includes a non-cash income tax benefit of $21.0 million in fiscal 2020 resulting from the remeasurement of the rate at which state deferred taxes will reverse in the future as discussed below.

Reconciliations of the provision for income taxes computed at the statutory rate of 21 percent to the reported provisions for income taxes from continuing operations for 2022, 2021 and 2020 are set forth below:

	2022		2021		2020
	(In thousands)
Tax at statutory rate	$	178,901	$	172,053	$	156,827
Common stock dividends deductible for tax reporting	(1,355)		(1,372)		(1,419)
State taxes (net of federal benefit)	24,669		19,647		22,791
Amortization of excess deferred taxes	(127,193)		(45,382)		(16,125)
Remeasurement due to state deferred tax rate change	—		—		(20,962)
Other, net	2,488		8,790		4,241
Income tax expense	$	77,510	$	153,736	$	145,353

Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that gave rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 2022 and 2021 are presented below:

	2022		2021
	(In thousands)
Deferred tax assets:
Employee benefit plans	$	57,094	$	64,316
Net operating loss carryforwards	485,061		911,424
Charitable and other credit carryforwards	1,903		7,712
Regulatory excess deferred tax	110,548		148,200
Lease asset	50,007		52,138
Other	44,035		33,591
Total deferred tax assets	748,648		1,217,381
Valuation allowance	(523)		(663)
Net deferred tax assets	748,125		1,216,718
Deferred tax liabilities:
Difference in net book value and net tax value of assets	(2,431,757)		(2,258,264)
Gas cost adjustments	(43,964)		(26,413)
Winter Storm Uri regulatory asset	(20,710)		(471,025)
Lease liability	(50,007)		(52,138)
Rate deferral adjustment	(49,309)		(47,445)
Interest rate agreements	(106,820)		(20,156)
Other	(45,063)		(47,086)
Total deferred tax liabilities	(2,747,630)		(2,922,527)
Net deferred tax liabilities	$	(1,999,505)	$	(1,705,809)

We deduct our purchased gas costs for federal income tax purposes in the period they are paid. As a result of impacts from Winter Storm Uri, we recorded a $471.0 million (tax effected) increase in our deferred tax liability and an increase in our net operating loss carryforward as of September 30, 2021. As a result of the financing order issued by the Texas RRC on February 8, 2022, we reduced the deferred tax liability associated with the Winter Storm Uri regulatory asset and the corresponding deferred tax asset associated with net operating loss carry forwards by $450.3 million during fiscal 2022.

At September 30, 2022, we had $441.3 million (tax effected) of federal net operating loss carryforwards. The federal net operating loss carryforwards are available to offset future taxable income and have no expiration date. The Company has no charitable contribution carryforwards to offset future taxable income as of September 30, 2022.

The Company also has $43.8 million (tax effected) of state net operating loss carryforwards (net of $11.4 million of federal effects) and $1.9 million of state tax credits carryforwards (net of $0.5 million of federal effects). Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards expiration period begins in fiscal 2026.

At September 30, 2022, we had recorded liabilities associated with unrecognized tax benefits totaling $52.7 million, which includes $12.8 million in deferred tax liabilities. The following table reconciles the beginning and ending balance of our unrecognized tax benefits:

	2022		2021		2020
	(In thousands)
Unrecognized tax benefits - beginning balance	$	32,792	$	30,921	$	27,716
Increase (decrease) resulting from prior period tax positions	(721)		671		(26)
Increase resulting from current period tax positions	20,612		1,200		3,231
Unrecognized tax benefits - ending balance	52,683		32,792		30,921
Less: deferred federal and state income tax benefits	(11,063)		(6,886)		(6,493)
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year	$	41,620	$	25,906	$	24,428

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties included within interest charges in our consolidated statements of comprehensive income. During the years ended September 30, 2022, 2021 and 2020, the Company recognized approximately $1.3 million, $1.4 million and $0.7 million in interest and penalties. The Company had approximately $11.7 million, $10.4 million and $8.2 million for the payment of interest and penalties accrued at September 30, 2022, 2021 and 2020.

We file income tax returns in the U.S. federal jurisdiction as well as in various states where we have operations. We have concluded substantially all U.S. federal income tax matters through fiscal year 2009 and concluded substantially all Texas income tax matters through fiscal year 2010.

Regulatory Excess Deferred Taxes

Regulatory excess net deferred taxes represent changes in our net deferred tax liability related to our cost of service ratemaking due to the enactment of the Tax Cuts and Jobs Act of 2017 (the TCJA) and a Kansas legislative change enacted in fiscal 2020. As of September 30, 2022 and 2021, $159.8 million and $155.9 million is recorded in other current liabilities.

Currently, the regulatory excess net deferred tax liability is being returned over various periods. Of this amount, $404.2 million, is being returned to customers over 35 - 60 months. An additional $78.4 million is being returned to customers on a provisional basis over 15 - 69 years until our regulators establish the final refund periods. The refund of the remaining $15.1 million will be addressed in future rate proceedings.